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Sydney Morning Herald Article On Market Risks

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The Reserve reiterated its concern over the proliferation of lenders offering low-doc, no-deposit mortgages with high repayment levels. While this relaxation of credit standards had given Australian households access to cheaper and more flexible loans, it had also created heightened risks in the event of an economic downturn, the central bank warned.

"Lenders and investors have had no experience with how a household sector with current levels of debt is likely to behave in less favourable economic circumstances," it said.

While a strong labour market and income growth had so far helped households to shoulder their heavy debt burden, an increase in defaults was likely over time, the central bank warned.

"To date, the supportive economic environment has meant that this general lowering of lending standards has not led to an increase in banks' overall bad debts expense, although, in time, an increase is likely," it said.

While housing credit growth has slowed over the past two years, overall debt levels remain high, with the average ratio of interest payments to income now almost double the 1990s average at 11 per cent. "In these circumstances, it is important that both borrowers and lenders recognise that the benign credit environment of the recent past may not be the best guide as to how the future unfolds," the central bank said.

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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